Oil company cutbacks force layoffs

Posted: Thursday, June 28, 2001

ANCHORAGE (AP) -- Scores of workers are facing layoffs as Alaska's big oil companies cut spending at Prudhoe Bay in the second half of the year.

BP Exploration (Alaska) Inc., which runs the Prudhoe field, is cutting its expense budget $40 million, or about 10 percent, to help deliver a promised $100 million in savings to its partners in the field: Exxon Mobil and Phillips.

The cuts will fall broadly on maintenance, repair and general field operations, said Ronnie Chappell, a BP spokesman. The Prudhoe capital budget, which pays for new developments, will not be cut.

No BP employees will lose jobs, but contractors, such as Veco, Alaska Petroleum Contractors and some drilling firms, will lay off at least 65 workers.

''This is a midcourse correction in order to live inside the budget,'' Chappell said. The cuts will curb work on wells, and Prudhoe oil production, which is now about 650,000 barrels a day, may fall slightly, he said.

But the news raised questions for some BP workers and state officials who are concerned about Prudhoe operations. And analysts note that with high oil prices, the timing of the cuts is strange.

''At today's prices, there is not much pressure to cut spending,'' said Michael Young, an analyst who follows BP for Gerard, Klauer, Mattison, a Boston investment bank.

Alaska oil prices have averaged more than $25 a barrel this year, compared to an inflation-adjusted average of about $20 in the 1990s.

BP is meeting a pledge it made in April 2000 to cut $100 million a year from field costs by streamlining Prudhoe operations under one company. Until last year, BP and Arco each ran half of Prudhoe.

Chappell said the cuts have been difficult to deliver because managers are still assessing savings from the combined operations. BP is working to consolidate billing, accounting and other administrative tasks.

The budget cut is the latest in a decade-long process to cut Prudhoe expenses and staff as oil production there falls. Prudhoe oil flow is less than half its 1987 peak of 1.65 million barrels a day.

Chappell said that despite the recent cuts, BP's total maintenance spending is flat and has increased as part of the total operating budget since 1995. On the western side of the field, which BP ran until the company took over the entire field in July, staff has fallen 23 percent to 336 employees since 1995 while adding some contract workers. Now, contractors are facing cuts.

Veco Corp. plans to lay off at 40 to 50 workers, said Val Malineaux, president of Veco Alaska Inc. Another 30 workers may be transferred. Anchorage-based Veco has about 500 maintenance and construction employees in Prudhoe Bay.

Alaska Petroleum Contractors, which does well servicing and corrosion control work at Prudhoe, will lay off about 15 people, said Bill Cheek, president of Natchiq Inc., which owns APC.

Peak Oil Field Service Co. may also face a pullback, said president Mike O'Connor.

The layoffs come as Alaska's oil patch employment is booming. In May, the state Labor Department recorded 9,800 oil workers -- up 20 percent from a year ago. The last time May employment hit that level was in 1991, said Neal Fried, state labor economist.

But most of that increased employment is spread among other fields than the aging Prudhoe.

BP is grappling with a series of challenges in the 24-year-old field, such as well valves that did not work in tests last winter and aging facilities that led to a large spill at Prudhoe last winter.

''We have serious concerns about aging infrastructure,'' said Michele Brown, state commissioner of environmental conservation. ''If they can save money, more power to them. But they are not going to be able to save money at the expense of environmental performance.''